Credit Risk Management as a Strategic Capability and its Impact on the Financial Performance of Ghanaian Banks

This study investigates the effect of credit risk management on the financial performance of Ghanaian banks, with emphasis on how capital adequacy, non-performing loans, and liquidity influence profitability. Using panel data from 17 commercial banks from 2012 to 2021, the study employs a quantitative design with a fixed-effects model to capture the unique dynamics within each bank. Financial performance is measured by Return on Assets (ROA), while key credit risk indicators include the capital adequacy ratio, non-performing loan ratio, and liquidity ratio. The study also controls for bank-specific and macroeconomic factors. The results reveal that credit risk management is a decisive determinant of bank profitability. Specifically, the capital adequacy ratio exhibits a significant positive effect on ROA, indicating that well-capitalised banks are more resilient and efficient in absorbing financial shocks. Conversely, non-performing loans exert a significant negative influence on profitability, underscoring the threat that poor asset quality poses to bank earnings and stability. Liquidity, although positively related to ROA, is statistically insignificant, suggesting its role is primarily stabilising rather than profit-generating. The findings validate the propositions of Risk Management Theory and Agency Theory, highlighting that financial performance depends not only on regulatory compliance but also on internal governance and strategic resource deployment. The study contributes to the empirical literature by providing context-specific evidence from an emerging African economy. It offers clear, practical guidelines for both regulators and bank managers, helping them enhance credit appraisal, monitor loans more proactively, and manage capital to promote profitability and business sustainability.